Since CD accounts are practically a no risk investment, they also produce a low yield compared to riskier investments. In the last several years, Certificate of Deposit rates have dropped even more significantly. You can still make the most out of investing in a CD by following just a few tips.
Before you invest in a CD account, be sure and compare CD rates to find the highest yield possible. CD’s are available for different term lengths so be sure and compare CD rates for the same terms. Many banks offer you the option to open an account online so you do not have to only look at local banks.
Being locked in for 5 years can be an advantage if the rate is significantly higher. But before you consider long-term rates with 3 years or longer maturity dates, take advantage of some of the short term, high-yield rates. Then, if the rates jump, you have an opportunity to take advantage of future rate increases.
Another way to capitalize on a CD deposit is the use of ladder CD’s. These allow you to take advantage of increasing rates without losing the liquidity advantage. Some banks offer ladder CD accounts that increase your rates automatically. Otherwise, you can do it yourself by splitting up your investment into one-year, two-year, and five-year options, for example.
For those who want liquidity and low risk, CD’s are a great option, especially when you know effective ways to invest in this market.